IT-Strategi 04 - The Evolution of ERP Systems: A Historical Perspective…
IT-Strategi 04 - The Evolution of ERP Systems: A Historical Perspective
the growth and success of ERP adoption and development in the new millennium will depend on the legacy ERP system’s capability of extending to Customer Relationship Management (CRM), Supply Chain Management (SCM) and other extended modules, and integration with the Internet-enabled applications
It is universally recognized by large and small-to- medium-size enterprises (SME) that the capability of providing the right information at the right time brings tremendous rewards to organizations in a global competitive world of complex business practices.
Off-the-shelf-solutions - In many cases they force companies to reengineer their business processes to accommodate the logic of the software modules for streamlining data flow throughout the organization
ERP vendors and customers have recognized the need for packages that follow open architecture, provide interchangeable modules and allow easy customization and user interfacing
ERP Systems Defined
Inventory Control Society (2001) has defined ERP systems as
“a method for the effective planning and controlling of all the resources needed to take, make, ship and account for customer orders in a manufacturing, distribution or service company"
"ERP (enterprise resource planning systems) comprises of a commercial software package that promises the seamless integration of all the information flowing through the company–financial, accounting, human re- sources, supply chain and customer information”
ERP systems are configurable information systems packages that integrate information and information-based processes within and across functional areas in an organization”
(Kumar & Van Hillsgersberg, 2000)
Figure 1: ERP systems concept
Evolution of ERP Systems
During the 1990s ERP vendors added more modules and functions as “add-ons” to the core modules giving birth to the “extended ERPs.” These ERP extensions include advanced planning and scheduling (APS), e-business solutions such as customer relationship management (CRM) and supply chain management (SCM). Figure 2 summarizes the historical events related with ERP.
ERP Systems and Organizations
The high expectation of achieving all-round cost savings and service improvements is very much dependent on how good the chosen ERP system fits to the organizational functionalities and how well the tailoring and configuration process of the system matched with the business culture, strategy and structure of the organization
Organizations choose and deploy ERP systems for many tangible and intangible benefits and strategic reasons
Advantages of ERP Systems
Reliable information access
Common DBMS, consistent and accurate data, improved reports
Avoid data and operations redundancy
Modules access same data from the central database, avoids multiple data input and update operations
Delivery and cycle time reduction
Minimizes retrieving and reporting delays
Time savings, improved control by enterprise-wide analysis of organizational decisions
Changes in business processes easy to adapt and restructure
Structured and modular design with “add- ons"
Vendor-supported long-term contract as part of the system procurement
Extended modules such as CRM and SCM
Internet commerce, collaborative culture
Disadvantages of ERP Systems
How to overcome
Minimize sensitive issues, internal politics and raise general consensus.
Cost may vary from thousands of dollars to millions. Business process reengineering cost may be extremely high
Conformity of the modules
The architecture and components of the selected system should conform to the business processes, culture and strategic goals of the organization.
Single vendor vs. multi-vendor consideration, options for “best of breeds,” long-term committed support
Features and complexity
ERP system may have too many features and modules so the user needs to consider carefully and implement the needful only
Scalability and global outreach
Look for vendor investment in R&D, long- term commitment to product and services, consider Internet-enabled systems.
Extended ERP capability
Consider middle-ware “add-on” facilities and extended modules such as CRM and SCM
ERP vendors are targeting this untapped SME market with supposedly scaled-back systems suitable for smaller firms by offering simple, cheaper and pre-configured easy-to-install solutions within budget and time constraints
ERP Systems Architecture
Some of these old systems were developed in-house while others were developed by different vendors creating islands of noncompatible solutions unfit for seamless data flow between them
An ERP system is required to have the following characteristics:
Modular design comprising many distinct business modules such as financial, manufacturing, accounting, distribution, etc.
Use centralized common database management system (DBMS)
The modules are integrated and provide seamless data flow among the modules, increasing operational transparency through standard interfaces
They are generally complex systems involving high cost
They are flexible and offer best business practices
They require time-consuming tailoring and configuration setups for integrating with the company’s business functions
The modules work in real time with online and batch processing capabilities
They are or soon they will be Internet-enabled
Enterprise systems employ thin client/server (C/S) technology or client/ fat server (C/FS) architecture, creating a decentralized computing environment. The general practice is to have three-tier architecture
Commercial ERP Systems
Long-term vision, commitment to service and support, module features, specialty, experience and financial strength for R&D are considered the major vendor qualities for product selection and turnkey implementation
SAP AG–Flagship Products R/3, mySAP.COM
Oracle Corporation–Flagship Product Oracle Applications
PeopleSoft Inc.–Flagship Product PeopleSoft8
The Baan Company–Flagship Product BaanERP
J.D. Edwards & Co.–Flagship Product OneWorld
Summary and the Future